Saturday, December 26, 2015

The Great Depression of 2006 never happened?

I got a comment last week about this blog being wrong for 10 years. And the writer went further by adding

“The point of all this is to say, that yes we will have ups and downs in markets, that's what markets do. But to sit on your hands for a decade and wait for a depression, and when it doesn't materialize after a decade, not admit flaw in your assumptions, is bullheaded.”
The following is not directed at my readers, but to Anonymous Dec 19, 5:21

I’d like to clarify a few things. During the years 2007, 8, 9 and 10 no one referred to those years as “the greatest recession since The Great Depression.” They do now. Janet Yellen in her address the other day stated, the bail out in 2007 was to confront “the greatest recession since the Great Depression.” No government employee is going to wave a flag and say we are currently in a depression. The Federal Reserve and the Treasury confronted the Congress in 2007 and said bluntly, to do a bailout or kiss the economy goodbye. And by the way the bail out failed to accomplish anything except spend money. We have 45.4 million people in the US on food stamps— so the telltale soup line kitchens of the 1930’s are not there.

The 100K, my wife and I have in savings, did not double in value over the last 10 years, it did nothing. We were effectively taxed by the government $100,000; our investment earnings were confiscated.

From 2006 to 20015 people have gone back to school to further their education because they couldn’t find a job. It didn’t do much, other than stimulate the economy and build up debt among young people. Over 60 percent of these loans will never be paid off, and they will linger around and hound the borrower until they die.

The national debt has increased 10 trillion dollars and the size of it means absolutely nothing to anyone. The US government has probably borrowed all of the saving in banks in the US and the entire amount in our retirement funds. They will have no problem paying you back, but will it be in your lifetime? Or will the entire amount paid to you have very little purchasing power?

There was the Great Invisible Displacement of Jobs because of the computer revolution that has been glossed over,(one person now had 10 times the productivity) and they were good paying jobs, gone forever. The largest loss of jobs has been to Asia; cheaper labor and lower corporate taxes. Most of those were minimum wage jobs.

There are absurd levels of unemployment in Europe. When Spain reports 20 percent, is it any more believable than any other government report? We can safely assume that they are not exaggerating. Banks in Europe are now “paying” negative interest rates. So with T-bills paying a quarter of a percent, a lot of foreign savings deposits will be headed to the US. ---Congress will have more money to borrow and spend.

You need a car; the car companies offer the new 8-year loan for those that can’t afford the 5 year one. The neat thing about this, is that it pushes the buyer’s insolvency out an extra 3 years into the future and at the same time stimulates the economy. Let’s face it, if it wasn’t affordable in 5 years, you shouldn’t have bought it in the first place.

Plus, look at what you purchase, everything has shrunk in size. There is no inflation unless you have a tape measure. Bleach and Ammonia used to be about a dollar a gallon. Guess what, they now sell half gallons at a dollar. Kind of looks the same, but there was a switch made you just didn’t catch it.

So from looking at this Great Depression, there is only one conclusion I can make. If you have money in the banks or in retirement funds, the interest on your savings have been confiscated for the last 10 years and prices have doubled. People with no savings thought that they had nothing to lose until they got a student loan, a wide TV and a new SUV. Add to that health insurance premiums cable and a couple of cell phones. They are living paycheck to paycheck. And if they are not working, they have moved home with mom and dad who are in their 80’s.

The real question: “Is the Great Depression over?” The answer is “No, it’s about to get worse.” Starvation in the Middle East. The collapse of the Euro in Europe. The collapse of oil prices could end most wars being fought (which might be a good thing). Stock market values are hypothecated on thin air. Bond prices are so low as to be deemed unreasonable as credible financial investment instruments. Speculative bubbles in rental real estate are rampant.

For people my age, the consensus is,keep working and don’t retire; it can’t be as painful, as retiring to suffer the future financial downfalls of fixed retirement benefits. We know something is about to change. Wall Street and the Federal Reserve have stirred the pot and no one is sure of the results. We do know one thing for sure, it is not going to be something that was planned or expected to happen.

This Great Depression started in 2006 and the end date is still not in sight. The only mistake I made in 1980 was to assume the interest rate would be around 7 percent up through my retirement. The changes over the last 10 years have been so gradual, they have been absorbed without being observed.

Here is hoping that the New Year will be better.

I hope everyone had a Merry Christmas, and here is I my wish to all of you, for a Happy New Year.

Friday, December 11, 2015

The Media The Phony Window To The World.

Pick up a newspaper, turn on the media and the world is all roses (except for a few minor wars and a world depression). Their investment advice and economic news is showing everyone how to invest their millions\billions. The media is no longer about who, what, why, where, and when; it's all about the rise to prominence and then the fall from grace.

The media is pandering to the masses. Feed them what they want to hear. Some news announcer tells me that Trump is not qualified to be President, I kind of wonder what school the announcer went to (The qualifications for President of the United States is 35 years or older and a born US citizen). Then we have Hillary Clinton not a day over 68 looking like she is 45 years old. On closer examination, Trump has balls and Hillary has (Bill’s) testicals (he lost them because of Monica). It’s a fine line defining the two, Trump will stride forward leading, while Hillary will push her group forward with an email.

I don’t really mean to be political, Hillary is depending on getting elected because she’s a woman. The country is already tired of the Democrats and Obama. A woman president, what a novel idea, but will it happen? The irritating thing is that I know people that will vote just for that, because it would be, “Such a great thing to have happen.” Political candidates are no longer being judged by their grit and gristle, but rather by what is deemed by the media as being politically correct.

We need to realize that we have a media that feeds on impropriety, and being politically incorrect. The media works on silly assumptions like black people can’t be racists because they are black. And if you are white and oppose their views, you are automatically deemed a racist and a bigot. Tell a racial joke and your political career is over. This is no longer a nation of tolerance and free speech, it is one of intolerance. The media feeds on this intolerance of being politically incorrect, until the person spotlighted resigns. It’s not about morals, it is about the media’s intolerance of imperfection.

Maybe Donald Trump knows something. The rest of the Republican Party contenders look like a bunch of wimps and pussies, too scared to talk, waiting to pounce on their opponents gaff. The media is running on the premise, "How can Trump represent the Republican Party and get elected?" He fails their litmus test of not being “Politically Correct.” Maybe the American public is tired of the media setting the standards for politicians running for office.

The real reality in the world is this, the media is setting standards that no real person could honestly meet. It is they who have set the standards of political correctness that everyone has to live up to. The media has set the bar too high for politicians (not to mention for everyone else). You have to be a godlike in character to get their blessing. Let’s face it, there are very few of us left that that can measure up ;>)

Tuesday, November 10, 2015

“Placate the Masses” An Old Roman Game

Notice how lately the protests over citizenship and a 15 dollar minimum wage revolve around demands from people who feel they are entitled. People are not asking for $15 an hour, they are demanding it with the reasoning that you can’t raise a family on $15 an hour. Sex beer and drugs are great, the responsibility that goes with its reality, sucks.

The real problem with the $15 hour wage is a little hidden. Entry level workers need minimum skill sets. High school dropout comes to mind. For the employer, he has his choice of employees. A high school grad or better; or maybe a chick with a knock out body that likes the “late shift.”

Then if it is only part time, you’ll be working two 3 hour shifts twice a day, 5 days a week. At that point you are not making $15 per hour, maybe only $10 per hour. The employer in the past could afford an 8 hour work day at $10 an hour on the assumption that it came out ok with coffee breaks, lunch breaks and bathroom breaks. 2 hours of pay would be wasted on non-necessary busy work. By switching to part time employees, the unsupervised coffee breaks, lunch breaks and bathroom breaks, health insurance and unemployment insurance, drop out of the equation. The employee gets two three hour shifts with a 4 hour break in between, a 10 hour day with 6 hours pay.

Economics actually dictates the price for labor, by using the government’s regulations, to the employers benefit. 40 hour work weeks, demand employer health insurance, 30 hour weeks don’t. Part time employees don’t have to be paid $15 dollars an hour.

Legislation may appear to placate the masses, but in the long run it acerbates the problem. Our State legislatures are a collection of the dumbest of the dumb when it comes to practicality. The thought that a law raising wages can change the economic livelihood of people in poverty is a little bit presumptuous-- great vote getter though.

A person with two kids thinking that $15 dollars an hour will help them out, knows absolutely nothing about real life. They will know poverty for their lifetime. I have a quote taped to my desk that reads, “The easiest way to teach your children about money, is for you not to have any.”

There is this "New Age" mentality of, “I want it now!” The concept of saving over time and earning ones way to wealth appears to be a waste of time (Janet Yellen can confirm it). We are now a nation that gives money back to people willing to spend and consume. Some major car company yesterday had an ad offering 20 percent back in a cash bonus for buying a car. Are we really placating the masses; or has the game gotten out of control? Reality is not a factor as long as the consumer has a credit card to abuse. Responsibility is for losers. Hmmm 100K student loan, and 100K in credit card debt, but earn 5 percent back for all of the credit card purchases. Why save at .05 percent when you can spend and get 5% back. Am I missing something here?

Monday, October 26, 2015

The Wealthy, The New Inflation Sponge

Common sense suggests that as the government prints more dollars, inflation should become more apparent. But here is what is happening each month: Cell phone companies are withdrawing $10 more from circulation for services, Cable Sports providers probably withdrawing from the economy $40 for every sport fan now. Figure $300 in interest to the banks for credit card interest, and another $300 for health care and car insurance. It is not being plowed back into the financial economic churn, it is being saved.

Food may have doubled in price but few notice it, everyone eats out, and those prices are out of sight. Plus if you can't cook, why screw up the food? Inflation is invisible to almost everyone.

As the wealthy get richer, their lifestyle doesn’t really increase in spending, the extra goes into the bank. Notice at this point, the money never “trickles down” to the poor people. So in effect the government prints a billion dollars trying to stimulate the economy with inflation and it goes into some rich guy’s bank account and will never see the light of day again, or for that fact circulate in the economy. I could be shot again for oversimplification, but a tremendous amount of printed dollars never make it back into the economy. We use to just have millionaires, now we have billionaires. It takes 1,000 millionaires to make one Billionaire. The sponge inflation factor is being seriously overlooked as if it doesn't exist. The way the cash has been taken out of the economy is probably what has saved the country from massive inflation so far. These people are far too rich to be able to consume at a level that would lead to product disappearing from the shelves. That is a good thing.

Poor people have no savings, they live paycheck to paycheck. Rich people, let the dollars collect. If there was a better method of delivering dollars to the poor, the economic condition of the poor would have improved years ago. An outright gift to the poor would discourage working for a living.

But what if the country stopped printing dollars? No socialism and a balanced budget. If you’re poor, the cable and the phone drop out of the equation. With welfare and Food stamps gone, you are going to work or starve, drugs become unaffordable as do credit card debts and new cars. The money taxes the rich get off of the poor are now gone. Hmmm

Let's get government salaries back into line. Why pay them more, if they are now more valuable in private sector, because of training? Let’s endure the inexperience of youth and train government employees on the assumption that if they are any good we will lose them, they will move on to private employment. Keep government wages realistic. And while we are at it, give everyone an equal 35k retirement plan. If you make more, contribute it yourself. I see no reason for a person making 100k a year get a retirement plan geared to his salary. You make more, save more, equal retirement plan for all. Of course that’s probably appears to smack of socialism, but more likely it is just plain common sense. Sadly we seem to be very short of common sense now days, it's not practical anymore, --How times have changed!

Saturday, October 17, 2015

Investment Misdirection

Most all bubbles are a misallocation of resources. We build more houses than we need, we bid stocks up to unsupportable levels. What it really works out to, at the height of the bubble the end purchasers pay too much for an overvalued item and lose everything. At the time they have comfort in the fact, that everyone is doing the same thing.

Our government has manipulated interest rates to almost zero (ZIRP). Using the rule of 72 which states dividing the interest rate into 72 yields the years to wait for your bank savings to double. Right now that is about 144 years. So if you want to invest your savings, why put it in the bank? The government is forcing people away from saving money in the bank to other forms of investment, the biggest two are the stock market and real estate rentals. Plus if the bank gives you zip on your savings, why not spend it now and enjoy it, there is no reward for saving—not in my life time or even my sons.

At some point in the future, when both the workers and the government are spending with no tomorrow in sight, there will be a shortage of product to consume. With a shortage of product, prices have to rise for those who really want to have it.

There are people saving like me for retirement, I’m 68. I just learned that by deferring my Social Security to age 70 I get to pay more for Medicare by about 50%. I can’t possibly live off of the interest on my savings. When I started saving, I was counting on a 5% interest rate at retirement. Notice who gets hurt with the low government interest rates, people who have saved money. We are not talking rich people, we are talking people that have managed to save a million dollars over a life time. At 5% interest, that’s about $50,000 a year for two to retire on until you have to be put in a rest home. Right now, that will return about $6,000 a year, not much for a life time of savings.

The real issue that has to be looked at, is that we are no longer a nation of savers, we are a nation of spenders. With both government spending and consumer spending, we will run out of product to buy not dollars. The government can print dollars, but it cannot print product, and the surplus product that will disappear, is the product that was available for purchase only because someone previously decided to save instead of consume. All of the printed money in the world cannot buy a car that was never built.

If 40 million food stamp shoppers want steak and lobster, guess what, chicken becomes a real deal.
And of course, if you want corn in your gas tank instead of in you cattle, steak becomes more expensive.
Notice one thing, almost everything mentioned has to do with government intervention. They can screw up anything and ask for your blessing at the same time.

It is very interesting growing old. Young people have no idea what I am talking about and people that are my age, nobody listens to. A little old lady the other day bought 3 hallmark cards and some expensive prescription drugs, and the total was $175. She put it on a credit card, I wonder if the balance will ever get paid off in her life time?

An FYI nugget
In today’s newspaper two different Investment funds each bought rental complexes in San Diego. A 35 unit one for 5.4 million, rents bumped up from $1,050 to $1,225, many on Social Security are moving out. Then a 208 unit luxury living complex bought for 84 million by Monogram Residential Trust of Texas projects rents on this one being built will be about $2,500 a month. The second one they paid double of what they should have IMHO. Both companies are trying to get a decent return on their investment. The only thing being overlooked is that rental returns are based on vacancy rates. You can charge any rate you desire, but the actual rental rate is determined by the rent collected over 12 months divided by 12 months. If it rents for $2,500 a month and is empty 6 months of the year, the net rental rate is $1,250 per month. The newspapers conclusion was that rental rates were rising, while at the same time in the first building everyone is moving out.

This is what made the Great Depression of the 1930's. What you wanted and expected from your investments, was not what you got. There was a disconnect that no one could comprehend.

Sunday, October 04, 2015

Vladimir Putin the Pragmatist

Syria is in the midst of a civil war and you hear stuff like “Bashar al-Assad has murdered thousands.” Kind of wonder what the headline would have been back in 1866 for our Civil War; “Lincoln murders 200,000.”
If the Russians can keep Bashar al-Assad in power, they have an ally in the Middle East that can help defeat ISIS. This guy is not jumping in a plane and leaving the country in fear of his life. Every foreign leader that our country has supported in the past is probably now living somewhere in Virginia.

In this case with Syria, the Russians offer stability and preservation of the political system. It’s not like the US where we invade and promise Democracy and then sneak out. Then we have to give refugee status to all of those who would be executed for collaboration on our exit.

If the civil war can be ended and the region becomes stable, people can move back to Syria. The present projected conditions are tragic. 4 million people are in the process of moving into Europe. When countries say that they can accommodate 20,000 over 5 years, what happens this year to the 4 million when the winter arrives? Logistically, how do you provide food and shelter on such a large scale?

Putin has a realistic approach to the problem. Stabilize Syria and get the refugees back into their own country, stem the emigration to Europe. Bashar al-Assad is not associated with a religious agenda that needs to be implemented which is a good thing.

Obama might not like what the Russians are doing, but the United States created this whole mess and if you have someone who is a strong leader that will fight, I say support them. 4 million people have a home that they would like to come back to, Political ideals like Democracy are for the idle rich, not the poor peasants who can ill afford it. Syria can come back just like Egypt.

Putin has no love for Democracy, maybe he realizes that it is a very ineffective form of government for people who are extremely poor. Move a family in Syria living on $200 a month to Europe and you find that they now need $800 per week to survive. Give the people stability and security in their own country and you recreate an economic engine for survival that will work again and revitalize Syria.

Consider Vladimir Putin as a pragmatist with a realistic solution for Syria. Of course we could step up to the plate, we already have 40 million on food stamps in this country, adding 4 million more to the program might even stimulate our economy.

Monday, September 14, 2015

Obama Land

Let’s see, half of the US is for Obamacare and half is against it. Then there is half against the Iranian deal and half for it. Immigration is another 50/50 split. There is one assumption being glossed over, that it is the same 50 percent in disagreement in all three cases. Obama has stepped on enough toes to have worn out his welcome. The thing that bothers me is that he has done it with an “Air” of authority. It reminds me of a person I worked in the past that smoked cigarettes. Most people that smoke are careful to tap their ashes into some sort of ash tray. This person would have a long ash on his cigarette, give you eye contact and then with you watching, tap the ashes onto the floor with kind of a head nod, suggesting that he hit the spot he intended.

Obama has found a way to circumvent Democracy, the rule of many with the rule of the few. His Presidential edicts poison the art of compromise. We no longer have a country united, we have a country divided by argument. His inability to see the Arab Spring as a mess waiting to happen is probably his greatest failure. Egypt will recover, but Libya is gone. Syria could be fixed, Russia is sending in troops. Syria’s president may not be well liked, but he is not a religious fanatic and he has the infrastructure to keep the country running by killing those that want to upset the apple cart. We didn’t like Saddam Hussain, but he kept order in his country. The refugees fleeing want order and they do not want to be drafted into a war. It’s kind of like the people that fled Europe to colonize North America. They didn’t want to fight in other people’s wars.

Preserving order is the prime directive. You cannot give a country Democracy, it doesn’t work that way. Raising the minimum wage, doesn’t solve poverty, more education doesn’t produce better paying jobs for many graduates.

We are not going to give the rest of the world Democracy when people are willing to die to further a religion because of their hopeless condition in this life; the right to vote never put food on the table. Religion gives the poor a new option, a better afterlife (notice how there is no way to argue that).

Where to from here? There lies the uncertainty. But one thing is sure, just as you need ugliness in order to define beauty, you need an example of incompetence in order to measure success. Obama land is a measure of incompetence, we can use it as a guide of what not to do in the future.

In a lighter sense, this is probably the first US President to have a sticker from every country in the world on his luggage. Job well done Mr. Tourist! And done on our dime—go figure--a real goldbrick!

Sunday, September 06, 2015

If It Ain’t Broke, Don’t Fix It!

In the past, Saddam Hussain in Iraq and Muammar Gaddafi in Libya, had a well-paid crew of police and informants that kept the population in order. Religion was out of the mix, if in doubt, execute. The driving force was dispersal of oil money to those who could control the population. It wasn’t perfect, but it worked. For most people the difference between democracy and a dictatorship is that in a dictatorship, you have a government to blame for your predicament, where here in the US, you have a list of reasons to choose from.

In Libya today, there is big money to be made, supplying refugees with flimsy boats for a trip to Italy, which is really a travesty. Their citizens have no means to effectively fight a bunch of gangsters with guns, so they vote with their feet. It’s a little like a movie where the bad guy wins and rides off into the sunset with your girlfriend or daughter.

If a group could be found to finance an invasion of Libya with a force of 30,000 mercenaries at 25K per mercenary, (we would be talking about 1.5 billion dollars) (750 million for wages and the rest for ammunition) the need for migration would end. Upon securing the country, the invader would have about 8 billion a year from oil sales. Kind of like what the Duke of Normandy did in 1066 to England.

The thing that really bothers me is our government’s meddling in the Middle East, and not taking any responsibility for the mess created. Millions of people trying to emigrate in life rafts to escape from a country that we have freed from dictatorship???? It doesn’t sound like we are going to get a thank you note from any of them.

Tuesday, September 01, 2015

The Federal Reserve An Impotent Institution

Let’s get this straight, the Federal Reserve is about to raise the Fed funds rate by ¼ of a percent. The business television hosts are discoursing ad nausea on this. If they were to raise it 3% that might do something.

One quarter of one percent is almost too small to measure. The phrase “Canary fart” comes to mind." The Federal Reserve thinks that raising the interest rate a minuscule amount is going to change the celestial motion of the heavenly bodies?

The idea that this is discussed as a plausible item on the business shows, kind of tells you that many people have lost their true perspective of the markets. An increase of ¼ point from zero is a pittance and a joke.

As long as the Federal Reserve can dictate very low interest rates, there is no reason to save. Common sense suggests that cash stashed in your mattress is better than cash stashed in the bank. Where to from here?--- Buy Gold, Silver and Platinum, the price is right!

Sunday, August 30, 2015

Red China, A Panic That Could Bring The House Down

The Chinese appear to have lost control of their stock market. In reality, the stock market is a psychological theater with no rhyme or reason. A bad day in one market can induce a world panic. Value is determined by the potential buyer’s willingness to agree on price. Is google worth 630 dollars a share? It is, if you can sell it to someone else for even more. A lot of the rest of the world is living on margin. And in our country, every rest home retiree is in the stock market—the bond market won’t pay the rent.

Our bond market is living on borrowed time. Risk is not factored into the market. Triple D bonds are not like a bra size, bigger is better. Buyers should be demanding 25% interest, not fighting each other for 7.25%. And in the past when things got really bad, the Federal Reserve would drop interest rates a quarter point time after time. Guess what, they are as low as they can go. You have to laugh when they talk about raising the interest rate one quarter point. This is not going to send people to the banks to open up savings accounts.

In times of panic, the stock market can have moments where there are no bids to buy a stock (called air pockets) and a stock can take a very large quick drop. Like 50 to 60 dollars.

And then there is the phrase, “Stocks always come back.” If you retired in 1929, were you around in 1954 when they came back? The real truth is; the stock market is an allusion of wealth without having to work for it.

Mark Faber is expecting a black swan event in world markets. I think we are fast approaching it. The bond market marches to a different drummer. It is manipulated by the Federal Reserve guarantees. The weird thing is, the Federal Reserve can buy all the bonds it desires and keep interest rates low. All it does is force investors into different investment vehicles. Real estate, oil drilling in the Midwest, and stocks have replaced bonds for interest’s rate returns.

So we have the Chinese market swirling out of control. Nobody ever claimed that a Socialist Republic had any entrepreneurial financial acumen; that would run contrary to the fabric of the socialist doctrine. They played our game using our rules and it had a good run. Now it has turned sour, like the tulip bubble, of several centuries ago. Financial meltdowns don’t destroy buildings, they destroy fortunes. One minute you are rich and the next minute you are poor. It is invisible in its speed and reach. This is what we are fast approaching. Oil goes from $110 a barrel to $40, an unexpected event. What happens if real interest rates jump to 8 percent? Of course it is not supposed to happen, but oil was never expected to hit $40. We can project what will happen in the future; the only trouble is that common sense, is not what markets run on.

China right now is like a bunch of school kids walking by a graveyard late at night. One loud noise and they’ll run like the devil is chasing them.

Sunday, August 23, 2015

Food Shortages in Africa and the Middle East

We are seeing mass migrations of people from the Middle East and northern Africa into Europe. Normally we are use to immigrants working in a country and sending money home for the family. The news reports show thousands of families with men, women and children in the boats. The driving force is the idea that any place is better than where they are coming from.

Most areas of the world support a maxed out number of people in good times. The amount of food and water is limited. Start a war, and you pretty much eliminate farming as an occupation. At that point people with guns are eagerly waiting for your harvest.

Oil used to be the great generator of income for many parts of the world. At $110 dollars a barrel, populations increased to balance the extra dollars. The drop in oil prices is like what the potato blight did to the Irish from 1845 to 1852. Populations increased because of the abundance of food and then collapsed. Starvation ensued—a million people died; plus the population of Ireland dropped 25% from emigration.

Oil has dropped 2/3’s in price. The old economic question of guns and/or butter is playing a major part in the wars around the Mediterranean. These areas in turmoil, could run out of money, food and farmers, before they run out of guns.

The Middle East oil has some logistic problems. A 500 gallon truck can only haul 12 barrels of oil. And it is very unlikely that the driver would be able to sell the oil at $40 per barrel after delivering it to a refinery or an oil tanker. Most of the oil will have to go by pipeline. How this can be coordinated in a war zone is rather mind boggling to say the least.

The one thing that we know, is that this year’s budget in most countries is probably close in size to last year’s budget. The trouble is, if oil revenues drop by 2/3’s, production has to increase to make up for the shortfall. Since guns are not a food item, look for armament purchases to drop drastically. Look for oil production to triple to cover government expenses. Net effect, more oil will be pumped out of the ground than anyone could ever need. Oil could drop to $28 a barrel.

The indirect effect of the drop in oil prices and war in the Middle East could lead to starvation on a large scale. Escape or die in place.

Wednesday, August 05, 2015

Raising the Minimum Wage

A while ago, I was in the self-serve check out at Ralphs supermarket and there was this guy waiting in the cashier line next to me. The girl managing the 4 self-serve kiosks asked the gentleman if he would like to use one of the self-serve kiosks, as it was faster. His reply, “No thank you, I already have a job.” I laughed for hours after hearing that.

The one thing that many have not realized is that the computer revolution has drastically eliminated many jobs. If it is repetitive, it is gone. ATM machines come to mind, look at all of the bank tellers that are no more. I went to Home Depot the other day and they have 6 self-serve kiosks with one worker running them. At Walmart, they had 10 of them running. Meter readers for gas, water and electricity are no more; each meter phones home to report consumption. One person with an excel spread sheet can do the work of 20 accountants. 40 years ago, a secretary had to be able to type 60 words a minute and handle a lot of printed correspondence. In today’s world, nobody even knows what I am talking about. Pull up a reply form letter on your computer, change the name, type in the email address and hit send.

The irritating thing is this, we have had a computer revolution that has change the mindset of business radically but yet Congress does not understand the future economic projection of the concept. Congress and local governments, think that setting wage standards in the USA will set the tune. The problem is, they are not even close. Profit return is what runs business. The bottom line, can a machine do the work cheaper than an employee? At a wage of $9 per hour, the answer is no, but at $15 per hour, the answer may be yes.

So don’t look for $15 per hour to solve our problems. In the long run it could create more unemployment. On the lighter side, one job is safe (as long as computers need humans), cleaning rest rooms. The sad thing, you may be over qualified for the job if you have a college degree.

Sunday, July 19, 2015

The Foolish Iranian Nuclear Agreement

Kind of a weird agreement. Iran doesn’t really need nukes. Once the sanctions are lifted, they will go into full production of armaments. Their economy will supply that part of the world with oil and weapons. Talk about full employment, everyone will have a job, building something that explodes -- everyday can be the 4th of July somewhere in the world!

Israel is a state of 6 million Jews surrounded by 40 million Arabs. Do you get the feeling that Iran feels the need to nuke Israel? Why even bother? It is the passion of Islam’s radical followers, to destroy Israel. That unites them and gives them resolve. For that reason, the target (Israel) is allowed to exist--magnify the hatred.

Iran will export religion. Of course this will be the fanatical form of religion with the standard promise of 70 virgins in the afterlife (no inflation there yet--I'd hold out for at least 90). Nobody has come back from the hereafter to contradict the validity of the purported promise; so it is a done deal without argument. You explode and kill Christians and live the good life for ever after.

Look for the consolidation of Iraqi, Egypt, Libya and possibly half of Africa. Iran will welcome them with open arms or with more arms if they need them.

We are dealing with religious zealots, whose primary goal is to spread Islam by eliminating non-believers (a religious war if you think outside the box). If Congress votes down this Mickey Mouse arms agreement with Iran, Israel may provide the solution that could be more stable; nuke the radicals and take over the country.

We have a president who we mise well call “Slick,” The Car Salesman. He’ll sell you a health care plan, a student loan program, a nuke agreement, a Cuban cigar and a government paid sex change.

Iran doesn’t need to go nuclear with numbnuts Obama running the show. The nuclear option is a form of miss direction. It’s kind of like Brer Rabbit (Iran) pleading with Brer Bear (Obama) to not throw him into the briar patch (no nukes). Iran gets everything they need by signing off on a nuclear option. They can consolidate their position and extend their boundaries using religion and small arms.

Our leader is giving pink slips to 60,000 more American troops this year. Great for the unemployment numbers. There is much world unrest because we have a President with no balls and the rest of the world knows it. You can lead with the projection of power, or you can talk with the projection of weakness.

Thursday, July 02, 2015

Greece, What Happens Next?

Greece over the last 50 years has implemented a retirement and government bureaucracy that has become a very large portion of their tax expenditures. Notice one thing, retirement and government expenses contribute nothing to the economy. They are like leaches that live on a host. Like most governments, the bills got bigger and bigger and the bureaucrats figured out a way to pass the financing of these contracts of debt into the future. Why does that mythical country, Obamaland come to mind, for some reason?

Greece is about to have a referendum on whether to accept the terms of the EU or to refuse them. It doesn’t really matter. All transfer payments that deal with support for non-working citizens will be eliminated or reduced by about 70 percent. The Army will get paid either way. If the vote is yes, I expect a rebellion with the military taking control. If the vote is no, expect everyone on a pension or government subsidy to be out of luck, no more funds. Savings in the banks will go poof.

So next Sunday with Greece, it really doesn’t matter how the vote goes. If you are retired, you will pay for passing this mess onto the youth of your country. Their banking system is in ruins. Their educated youth has fled to other countries.

The preservation of the Euro is a Non-Sequitur for Greece. The old “farts” need to realize that they can’t tax the youth of their country for their future retirement. They can try, but I think it will fail this time. Let's not single them out as the only guilty country; it was the world bankers that "Cleaned their plow." The PIIGS as a group will fall together, one at a time.

The vote on Sunday revolves around; "Do you want to keep your government pension" or "Do you want to default on the EU loans?" Greece is in a depression. Chancellor Merkel of Germany is demanding repayment from Greece --- funny, how in 1933, "someone" in Germany repudiated the war reparations that had impoverished their country. To say that solution worked OK for them is a gross understatement of fact; it eventually led to a world war.

Moral: Don't expect a politician to get you out of a problem they helped you get into.

Tuesday, June 16, 2015

Congressional Mentality -- Idiots Rule

I was listening to the radio yesterday and heard that Congressman Charles Schumer is trying to get the airlines to stop their downsizing of the luggage size limits for passengers. I mentally thought it through, and realized that many passengers abuse the carry-on luggage to a ridiculous level. The airlines idea to make the luggage bags smaller would be a partial solution. But that is not the real problem.

The real problem is space per passenger. If you remember air travel 30 years ago, you had some space when you sat down and some leg room too. This “lebensraum” gave you some peace of mind and comfort. I used to be able to get up from a window seat and squeeze between the other two persons to get to the bathroom or stretch my legs. That isn't so anymore. The two passengers in your row have to get out of their seats in order for you to access the isle. God help you if the drink cart is blocking your access to the restrooms. Don't even try to use the first class rest rooms.

In today’s seating on airlines, you mentally have to discuss with yourself who has access to the arm rest next to you. Do you dare recline the seat? This invasion of your body space is very stressful. Just as a test, move real close to someone you are not familiar with and you can observe it firsthand. Violating someone’s body space (unless you are romantically involved with them) is very irritating, if not intimidating. It is this close confinement on airlines that results in a lot of bad behavior. You feel uncomfortable and claustrophobic and don’t really know why. Your perceived envelope of body space is yours alone and the airlines should understand this concepts from a physiological perspective. Airline management has to ignore that, if they are trying to pack the plane for max profit. "Sardine can" comes to mind for some reason.

Of course Congressman Schumer wants you to believe the discussion revolves around bag size, not the number of people stuffed into the airplane. Why don’t we do something different, instead of making the carry-on baggage smaller, why not lengthen the space between seats by about a foot and make the seats 3 inches wider? Guess what, you can’t fit as many people on an airliner and therefore, there is more luggage space.

Do we need Congressmen that can only think inside the box? --suitcase mentality! Or people that really understand the problem? I'd like to see standards set for airline seating space, not suitcase size. Schumer impresses me as a complete ID-10T that is 404 in the internet world. His solutions address the business world of money not the airline traveler. Give me a break, give me more leg and elbow room on my next flight.

The real question; "Are we getting more for our dollar or less?" That is what this Great Depression is all about.

Monday, June 01, 2015

Under the Mattress and Backyard Shovel Banking

Getting old and ready to retire, a lot of the benefits you receive from that point out depend on how much money you have in the bank. We are not talking safety deposit boxes, just cash in a bank account. So if you have a stroke and have 100k in the bank, and need to be parked in a rest home, that savings goes poof (rest homes costs 50k per year). Sell your home to move into a rest home, that money goes first before you can qualify for Supplementary Security Income in addition to your Social Security.

Former Speaker of the House Dennis Hastert could go to jail for giving someone hush money. The funny thing is, it was his money and he earned it. It's against the law to make cash withdrawals of less than $10,000 to avoid having the banks report it. They track every cash transaction over $10,000. The government looks at large cash transactions as a sign of illegal commerce. It very well could be. But more to the point, these transactions are invisible from taxation.

Legally you can only give each of your kids $10,000 a year tax free. What is to stop you from giving them, cash? Hmmm.

I purchase gold and silver now and then to add to my retirement funds, (leaving it in the bank to collect interest is an excellent waste of time). I usually pay by cashier’s check, I feel uncomfortable carrying cash. You want to buy one million dollars of gold, go right ahead write a check, no one will question it, you are breaking no laws. I’ve seen two different people show up at one coin shop I frequent, with ledger checkbooks, writing company checks for gold around Christmas time. I could swear the one guy wrote “cleaning supplies” on the check memo.

People are shifting to cash. If you have a debt collector after you, or an ex-wife looking for alimony, you don’t want direct deposit. Your paycheck will vaporize when it hits your account. The same for student loans. If you have a part time job under the table, you’re not going to put the dollars in the bank, it will screw up any government benefits you are currently collecting. Bust your butt to earn an extra $10,000 and find out it goes into your healthcare that was free, until it showed up in your tax return.

Hurricane Katrina showed the Federal government how invisibly large the cash economy was in that city, after the disaster. All of the Federal support checks being mailed down there, all of a sudden had no valid addresses. The words fraud and abuse never surfaced, and if they had, many high up government officials would have qualified for jail time. They whistled by the graveyard on that one.

The mechanic down the street has two prices, one for credit cards and the other for cash. When the phone says press one for English, you know there are two economies, one is hidden.

So what is going on, we have an economy that is collecting less taxes and having more expenses to cover. In order to participate in this "Free lunch program," you have to be broke (excluding your Mercedes and million dollar home--they don't count against you). The new trend is to hide your assets in a safety deposit box or under the mattress. The banks don't pay any meaningful interest. $100,000 in the bank at 1% will pay $1,000 a year. Hide the dollars and get a bonus of $3,600 in food stamps an EBT debit card.

The neat thing about keeping your money out of the banking system, is that no one from Nigeria can get on the phone with you and drain your retirement account. They can’t touch your mattress or the box buried in the back yard. Home Depot has shovels on sale at $15. Tip--don't bury currency or hide it in the walls, rats love the stuff for nesting.

Another good thing, if your care taker wants to make $1,000 the hard way, you have the cash on hand (that’s when having a bad memory is a good thing). You don’t have to go shopping with the wife to have fun—you can have fun, while the wife is shopping.

Interest rates are real low and no one is borrowing, but God help you if you want to withdraw your saving in cash. Retirees have gobs of money in banks, they have monthly statements to prove it. Bernie Madoff’s problem started when people wanted their dollars back. So far, most retirees are content to play the game of “Leave it in the bank.” The problem is, low interest rates have changed the way you play the game. You get more from government, if you can prove you have nothing. What would happen if more people (who have savings) wanted their savings in cash? The government wouldn't be able to borrow those dollars, to give it to those, that have none. But while they have the dollars, get in line and make Bernie proud.

Friday, May 22, 2015

Rental Housing in California Sucks

Statistically speaking, rentals on paper are a goldmine but there is one problem. Abuse of the asset. It’s great if you have a two bed room unit for rent. The real trouble is the other 4 people you didn’t meet that want to call it home. Basic cleanup repaint and carpeting can run about $12,000. And the neat thing, is if you have someone managing the place, they are going to want another 15 percent for management expenses.

The basic thought premise, is that rentals are a godsend with the low interest rate returns. The reality is that you may wish you had ever thought of the idea. You may have to evict them and that could take about 8 months. And you might have to pay them $1,500 just to move out even though they haven’t paid rent in months.

Rental prices may be high in California, and if you are strapped for cash, you can rent a garage for about $900 -- split 6 ways, that’s about $150 a month. Of course that is illegal, and probably the people living in the garage are also illegals.

Housing prices are going up in California, and the number of cars parked in front of each house is also going up. Kind of makes you wonder what line of work your neighbor is in, to have 6 cars parked outside his house with a three car garage—three cars in the driveway and three at the curb. Of course, he could have three more cars in the garage. I walk by several, every day that have a sofa and TV in the garage or a garage that is packed full to the ceiling.

IMHO if the Federal government had let the real estate bubble crash in California, we would not have everyone moving home to survive. Prices would be realistic to where you could afford to buy a home without sharing it with another couple. 10 years ago, in my area, there were maybe one or two cars parked at the curb. Now days, on trash day, finding a space along the curb for three trash cans can be a real chore.

Just pause for one minute and think when has it been this bad before? If you have a job, life is great, if you don’t have one, life sucks. This is a bad time for a lot of people. This isn’t a depression, everything is just hunky-dory (the government told me so).

From the million dollar home, the owner can see the guy across the street with his car up on jacks trying to get it to run. While that guy can watch the soccer mom back out of their McMansion in their Mercedes SUV. You do have to admit that the guy with his car up on jacks has a better view out his front window than the guy in the McMansion. Two different lifestyles that are worlds apart and on the same block.

Let’s boil this mess down to its basics. If a house rents for $1,250 a month, 2 people need to live in it, $2,500 4 people. If a house is selling for under 250K two adult occupants, 500K 4 adults. What happened in California? The occupancy rate of homes depends on the amount money earned by the average worker. At 9 dollars an hour, you only make $1,440 a month, your max for rent is $800. You'll need a roommate.

The government effort to save housing prices, by supporting the price of housing with the Fannie and Freddie supports, has only increased the number of occupants per residence. The economics of it are a little like squeezing on a balloon. You get one desired effect with several unknown ones.

Of course to the untrained observer, looking at all of the cars parked outside all of the homes out here, auto sales must be booming. But it could be a bunch of kids unemployed, living at home and too poor to pay on their student loans. And we dare not mention car loans.

So let me think, who gets to cut my lawn this week? -- Jose living in the garage, or the neighbor's son Jesse with a BS degree and a student loan? The answer "me," my wife doesn't have to pay me.

Tuesday, May 12, 2015

Obama the Manipulator

Not sure where this fits into the meld of world events, but I though it worth giving it a link. Its about the death of Osama Bin Laden. The reporter that did this also did the My Lia incident in Viet Nam and has a Pulitzer prize for journalism. It kind of portrays our President as a real manipulator. It is a little long, but it seems to explain why his cabinet and appointees tend to be distancing themselves from Obama. Click on the link below.

The Killing of Osama Bin Laden

Saturday, May 09, 2015

Democracy The Land Of Dreams

In a Democracy, there is always someone who falls between the cracks. The Democrats use these people as examples of the system failing as a whole. When in reality, no system will cover everyone. Most government programs are like training wheels with the option; you can keep them for a lifetime. The trouble is, most people will, if given the chance.

World Democracy isn’t about politics, it is about money and lifestyle. You can be just as happy in a socialist country with a lot of money, just as well as in a Democracy. The great thing about Democracy in the United States is that it provides a level playing field to acquire wealth; in other countries that option most probably doesn’t exist. When our government promises the world Democracy, realize one thing. You can’t make these people rich in their own country. In most cases their dreams of an elevated lifestyle, from their misconceptions about Democracy, fail to ever materialize.

Immigrants come here with a dream of putting their child through college and getting them a better life. They will live through the success of their kids. Now you see why they succeed, their kids are their future. Whereas in the ghetto, kids are a byproduct of Saturday night sex; they are tolerated but not pushed to overachieve. Government welfare supports this way of life. No dream, just food and a housing allowance. You want more, then game the system.

The Democrats will produce the most losers in our new economy with all of the increased subsidies. You don’t have to be black, but it helps, failure always loves a ready-made excuse. I remember how hard it was to get a job when I was young and white. I couldn’t get the job, they’d hire a minority or a woman and it hurt. I got so mad that I bought a lawn mower on my credit card and started a lawn business. Good money for 4 years, but I couldn’t stand the boredom. From there, life improved. A little push is all it took.

Most of the world equates Democracy to being rich. If you are poor, it doesn’t matter where you live, Democracy is just beyond your grasp. All Democracy provides you is a chance at success or failure. Once you understand the reason why we lost the Viet Nam war, you can understand how fragile Democracy is. The Vietnamese farmer could point to his land, his wife and kids and his crops, but he could not point to Democracy. It is an abstraction.

The US needs to be very careful about giving the rest of the world Democracy--many foreigners view Democracy as being a backward way of governing. The problem is, our leaders don't understand that the world is an entirely different place when viewed through the eyes of someone from a different culture or religion. They think everyone sees the world as they do.

Getting rich is a dream in today's world. Everyone notices those that make the grade each year. Our government is always out to tax the rich. The rich are the "evil" people keeping the rest of Americans poor. It's OK to be poor in this country. And with a lot of hard work, by God, you too can become rich so we can all envy your wealth while the government taxes you to death.

Reality is living under the freeway in a cardboard box existing on food stamps. It's an "alternate lifestyle" for those "retiring" early in life. A little meth and some good whiskey and you too can dream about the good life.

The US is still a land of hope and dreams punctuated by reality. The paradox is the dream/nightmare about saving for a lifetime of retirement in luxury. Congress has destroyed the 8th wonder of the world, compound interest, and with it the middle class. The other day, I had to explain the rule of 72 to a bank executive handling my IRA. When I explained to her that when you took .5 percent, and divided it into 72, it took 144 years for your savings to double. The confused, incredulous look she gave back to me said it all. From here, we can deduce that the hand basket is real, the destination is still unknown only due to a lack of interest (pun intended).

Saturday, May 02, 2015

Taxing The Rich

I really don’t understand the thought process involved in the government’s proposal to tax the rich. Everyone has about 70 years on this planet, and you either save for retirement or you don’t. Why should those that saved, be tax because others didn’t put money away for retirement? You want to drive a corvette and impress me with you wealth, don’t whine when you reach retirement age and have no savings.

My only question in life is, “Why do Democrats exist?” They want to give money those that never saved for retirement by taking it from those that did save. Notice you cannot take money from people who have none. And in this country, if you can prove you’re broke, you can qualify for government subsidies. How hard is that to do? They government wants to give to those that don’t have anything, and if you give everything to your kids, you too can qualify for benefits. In some families that might not be a very good idea. It could take only a couple of weeks to snort all of Dad’ IRA up your nose.

The neat thing about taxing the rich, is that the old rich have no idea what you are doing in a lot of cases. Senility has set in. Try raising the taxes on the middle aged. The only real way to do it is through inflation, the young people today don’t understand that concept, raising taxes they fully comprehend. Solar panels are selling like hotcakes because energy prices have “doubled” in the last 20 years. How do you connect the dots if you are 21 and someone tells you that cigarettes were 23 cents a pack 40 years ago?

Inflation is an "Old People's Disease." Congress's prescription; "Take two aspirin and call me in the morning if you're not dead. And in case you are dead, don't feel obligated to call."

Tuesday, April 21, 2015

Steak For Everyone

I barbecued a few steaks yesterday for dinner with creamed corn and boiled potatoes.  The can of creamed corn was about 79 cents and we used about 4 potatoes, figure 50 cents.  The three steaks (1.79 pounds) were $19.67.  You kind of have to wonder what does a whole cow cost.

There is something very political about this, a farmer can make a hell of a lot more money selling corn for ethanol that to farmers for feed.  I’ve heard that the government ethanol subsidy for production is about to expire this year, so maybe cattle prices can drop a bit if feed becomes cheaper.

Of course with the new $15 dollar minimum wage push, I guess that steak can be on everyone’s menu.  People are concerned because they can’t support a family on $15 per hour. And we are not even talking about saving for retirement.  In today’s world you have a choice, cell phone, cable, retirement, or steak.  And of course the average person will want them all but will settle for all but one--retirement.

A nice steak used to be very delicious.  And now as I reach retirement, I realize that the cost of the steak detracted from my enjoyment of it. Of course I have other worries.  My dentist says I could lose my teeth in 20 years if I don’t spend $8,000 on bone grafts.  I advised him that I probably wouldn’t be around in 20 years. My hearing doctor wants me to spend $4,000 an ear for hearing aids, and I mentioned that not being able to hear what most people were saying wasn’t worth a quarter of the price she was asking.

 From a humorous perspective, I look at all of the young people protesting for a $15 minimum wage and wondered where all of the silver foxes are when it comes to protests.  Its real simple, a walk to the bathroom is a major accomplishment in old age.

 So let’s get this straight. Ethanol makes my steaks more expensive.  Food stamps makes my steaks free.  Somehow I am missing something here. “Eat mor chikin”  is a reality check for people that have morals when it comes to gaming the system.

Friday, April 10, 2015

The Embezzler

I’ve written on this before, but this time we will examine another avenue of deceit. Imagine we have a billionaire with a very corrupt money manager embezzling his employer’s wealth. In most cases, neither party would probably spend more than a million a year. And if no one got caught, it would take 50 years to go through 10% of the billion. Basically you have two people that share the same billionaire lifestyle. The person being embezzled from has no idea of his losses until they are discovered; his death could trigger an audit that would discover the crime.

Pretty much when we get to wealth above a billion dollars, the owner has wealth that they will never even have the time to spend. That could be argued, especially if they get married to a real gold digger.

Now imagine the 9 to 5 worker that saves 5,000 a year in his 401k for 40 years. He now has a nest egg of from 500k to maybe 2 million. So if he started at 20 years old, that makes him 60. So he has about 7 more years before retirement. Notice one thing here, if someone has embezzled his savings, he still won’t know about it for another 7 years at the earliest.

Then if we reexamine Bernie Madoff, he only had a problem when the economy was in the tank. Incoming deposits couldn't cover his clients withdrawals. The Federal Reserve and Treasury will never have that problem.

Something else can happen that changes everything. Bankers loan dollars to investors in the stock market. A stock gets bought and the seller buys a Treasury bill. If the stock market were to drop a hell of a lot, the buyers would get margin calls they couldn’t meet. At this point, interest rates have to rise to attract funds for the margin calls. Sell Treasury bills to get the higher interest paid on the stock exchange to cover margin calls. The neat thing here, is that Joe Taxpayer gets to bail out the bank.

Remember back to when we were talking about the Billionaires and how little of what they had, they really used and about the retirees with all of their savings still 7 years out of reach? As long as you don’t need it, you would have no idea that it is already gone and spent.

Here is the simple math, the population as a whole decided not to consume 18 trillion dollars of their income so they could enjoy it at retirement. The government spent those dollars and consumed product that the population had made an effort to save, for retirement. Now as retirement rolls around, the retirees are starting to spend the dollars that they had saved in the past. There is only one problem, there isn’t 18 trillion dollars’ worth of product for them to consume. I would hazard a guess that maybe there is 4 trillion of product to match the 18 trillion saved for later consumption. As long as receipts exceed outflow from the fund, there is no problem. During difficult times, more people tap into their retirement funds. And as Bernie learned, it’s a game of musical chairs waiting for the music to stop.

Consumption is different at retirement. You have worked hard and saved for the golden years. The funny thing is, the government already borrowed the cash and consumed what you would want to purchase. 43 million people on food stamps is one a hell of a free lunch. Your money is safe, they can always print more. I'm wondering what sort of salad dressing goes well with crisp one dollar bills? Or whether a ten dollar bill has more flavor than a five dollar bill?

Monday, March 30, 2015

Ethanol Dosen't Work

Looking at the price of gas dropping, I was wondering if we could get rid of the 10% ethanol additive. It costs more to add it to our gas. Plus when you make ethanol out of corn, it is the steaks and hamburger we eat that cost more. The idea of raising food to make gasoline is an absurdity in and of itself.

Economically on the financial, there are a lot of people getting subsidies for making ethanol for gas.
From Forbes 4/20/2014 “It's Final -- Corn Ethanol Is Of No Use”

In 2000, over 90% of the U.S. corn crop went to feed people and livestock, many in undeveloped countries, with less than 5% used to produce ethanol. In 2013, however, 40% went to produce ethanol, 45% was used to feed livestock, and only 15% was used for food and beverage.

In 2014, the U.S. will use almost 5 billion bushels of corn to produce over 13 billion gallons of ethanol fuel. The grain required to fill a 25-gallon gas tank with ethanol can feed one person for a year, so the amount of corn used to make that 13 billion gallons of ethanol will not feed the almost 500 million people it was feeding in 2000. This is the entire population of the Western Hemisphere outside of the United States
Kind of tear jerking, but it does explain why I can’t afford to buy steak anymore. Why should the price of oil dictate the price of beef? We use to eat beef every day, now we eat chicken every day and I am starting to get used to it.

The big thing about ethanol in your car, is that it reduces the miles you get per gallon. Plus the caustic effects of alcohol on your fuel system eats the hell out of the plastic fuel lines.

Then I thought, how did we get to be using ethanol? Congress comes to mind. It was supposed to curb our dependence on foreign oil imports. What we are really experiencing is the “unanticipated” consequences of that program. Any red neck farmer knew right away that his corn was worth a lot more to the government as a gasoline additive. Chicken feed is still chicken feed.

On a personal level, I’d like to see some deflation in beef prices, and the easiest way to do it is at the gas pumps. Let’s put the ethanol genie back in the bottle. I wouldn’t mind getting a half gallon of gin with every gas fill up (instead of being put in my tank)—I could give the bottle to the guy on the freeway with the sign “Will work for food.” That would certainly put a glimmer in his eye. Of course the way Congress works with subsidies, maybe they will get General Motors to make a car that runs on pot. The neat thing about a car that runs on pot, is that when you turn it on, you’ll immediately forget where you were going.

Somehow Congress has figured out what we need and passed a law to protect us from ourselves. Maybe we need to smoke some dope to understand where they are coming from. Sanity seems to be the issue, lead poisoning could be the problem or a pretty good excuse for what they have already done.

Saturday, March 14, 2015

The Middle Class Redefined

Government and Politicians always discuss the writ of passage in becoming part of the middle class. We hear it all the time “Everyone needs to be able to have a shot at joining the middle class in this country.” Boiled down into simpler terms, the poor are offered the opportunity to become rich albeit not rich enough to be in the “Tax the rich group.”

It’s a little like the “red neck” jokes. You know you’re not middle class if you get paid the minimum wage. Usually “flipping hamburgers” is substituted for “minimum wage.’ In reality, it doesn’t matter what the minimum wage is raised to, you are still flipping hamburgers. So if the wage is raised, it is still not enough and never will be no matter how high it is raised. The minimum wage will not support a family of 4, it never has and never will, but by God the bleeding hearts on the nightly news think that this is rank with injustice.

Owning a home and two cars with the bank and no savings also is not middle class. You look good, but you’re only two paychecks away from divorce and being homeless. You have all of the trappings of having made it to the middle class and as far as the government is concerned, you are a poster child for the poor who are looking in the window.

IMHO the real middle class comes from a three generation mix of one family, the grandparents, their kids and their grandkids. And the whole thing is predicated on the fact that the grandparents have enough savings to weather the storms of their children. Marriage tends to give the unit structure.

The government is selling the idea of education as a writ of passage into becoming middle class. The same thing happened after the civil war, you became an independent share cropper, working for yourself. And ended up owing your soul, to the company store for forever and a day, and they didn’t care if you were black or white, money is money.

So when Obama gets up and wants a college education for everyone, to allow graduates the ability to join the middle class, how is that going to work? The student loans are a debt that will never be paid by over 70 percent of the applicants. They will never earn enough to pay the debt and support their children at the same time. Notice a college education does not come with a guarantee of a better job with higher pay when you graduate. Especially if you are majoring as a librarian, astronomer, historian or any other degree in liberal arts. Nobody is claiming that the dream won’t work for you, but the odds are stacked against you.

We need to recognize what politics considers the “Middle Class.” It is a carrot on a stick. It is an abstract place we all want to be, and frankly I am only getting there now, when I am almost too old to enjoy it.

It was the middle class that fought England for our freedom from unjust foreign taxation in 1776. Fast forward to today, and we still have someone taxing everything, but there is no foreign power levying usurious taxes an ocean away rather it’s our own Congress. “Middle Class” is a Congressional euphemism for tax payer. You cannot tax the poor, they make too little, you cannot tax the rich; they’ve already paid the tax on what they have earned.

From a personal standpoint, the title, Middle Class means you have made it. The importance of the title means you feel somewhat obliged to pay taxes. The Middle Class is beginning to comprehend the new economic order; the poor deserve more of the wealth generated by the middle class. The real reality is a little like forcing a hooker to give discounts to the poor; she won't have her heart in it, let alone her body.

Tuesday, March 03, 2015

The Zero Interest Rate Policy (ZIRP) Sucks

I feel like kicking a big rock every time I remind myself that short term interest rates are so low and that the interest on your principle is absurd; you cannot afford to reasonably expect to live off of your retirement savings. Realistically many retirees have saved a million dollars for retirement when interest rates were a lot higher. But at 2 percent interest, that nest egg returns about 20 thousand a year. At 8 percent, it would be about 80 thousand dollars.

Then I read a current CNBC article that stated that; “If you invested that $24,000 at 8 percent for 30 years, it becomes $91,000.” At the present ½ percent interest using the rule of 72, it would take 144 years to double your dollars and you are not even close to the $91,000 figure. So there are two trains of thought running here, before and after government intervention.

You have to ask one question, why are rates so low? The main reason, there is too much money in the banks and not enough people with good credit that want to borrow it. You can lower rates in the expectation that people will borrow. But the government cannot force people to take out loans. The net effect is like pushing on a string.

The housing market has not rebounded with the lower interest rates in California. People are still trying to sell crap shacks for 400K. One problem now, the banks don’t want to hold on to paper with low interest rates. Why? If rates go up they have to pay depositors on a monthly basis, whereas they are locked into a low loan rate that is fixed for 30 years. You can get an MBA in Stupidity if you are a politician, but not as a bank manager.

The government has to get out of the loan market. Of course you have to realize how they financed all of the real estate sales for the last 7 years. What happens is this; the Treasury issues four to eight trillion dollars of 30 year securities that are purchased by the Federal Reserve Board. So in 30 years, the securities mature and the Federal Reserve gets its dollars back. In the meantime, the Treasury has the funds to sell and finance property to everyone who has a pulse. Sell the defaulted property and support the artificially high real estate prices. What we can figure right now is that the Federal Reserve has between 4 and 8 trillion dollars’ worth of notes from the Treasury for real estate loans. Since the Fed turns over all interest on its transactions, a lack of interest generated means that there is nothing to transfer and at the end of 30 years. They don’t have to make money to stay in business. The notes will be redeemed and it will be a zero sum game.

What has happened in the meantime, retirees are screwed out of their real interest income. If the government was not in the mix, interest rates would not be at their current low rates. Housing prices on the West coast would have collapsed. And the market would have gone back to more normal interest rates. Bad loans would be bad loans and money would be lost, not guaranteed by the government. Risk would again be part of the market.

High risk loans at exorbitant rates are still around quite prominently. Just look at credit card debt. Credit cards offer cash loans at 25 percent. Your monthly interest rate is determined by your credit score. Bad credit, just how bad do you want the money? We are not talking 15 percent interest here, higher.

The banks are in the loan business and there are areas where they get a decent return. Government guaranteed student loans at 6 percent and credit card debt starting at 6 percent on up to 36 percent. The student loan borrower cannot default and the total amount is guaranteed by you guessed it, We the people.

But wait a minute, the super low rates allow Congress to borrow more without having to raise taxes. So let’s see now, the money that government is borrowing is for consumption. These are dollars that the private industry would use to invest in the future.

What we can deduce at the present time is that easy money at decent interest rates funded a real estate bubble. We still have bubble prices and very few buyers, real estate is no longer the road to fabulous wealth. We also know that buying T-bills or putting your savings in a bank is a losing proposition. We can pretty well tell where the dollars are not going. Bubbles are created when too much money is invested in the wrong place. It is called misallocation of resources.

Where are the next bubbles? Third world economies? The stock market? The health care market? Student loans? Credit cards? Cell phones? Solar panels?

Its only when a bubble bursts that it is realized for what it is. The last people in, are left holding the bag. The neat thing about bubbles, you can only see them in the rear view mirror.

The one thing not fully understood by those in charge, is that economic theory can only be used to explain the "Why" of what has already happened. It doesn’t work when applied to controlling future expectations. New economic policies force people to change their investment strategies in ways to maximize gain that aren’t necessarily prudent or productive. And that changes the expected results.

When Suze Orman tells seniors to avoid the bond market because it is a lousy investment that pretty much says it all. Interest rates are the key to a healthy economy. The reward for saving money has to be present for future investments. The more the risk the greater the return. You have a problem when all risk returns the same gain low gain; people vote with their feet and their pocketbooks.

It looks like the stock market is the last game in town. And there is only one difference with this game, it is out of the realm of political control and comprehension. The Government is not coming to your aid if the market collapses. But hey, the game is just starting, markets are on a new swing upward. Faites vos jeux! ---This could be a year to remember, unlike any other in recent time. The trouble is, after it is over, you might just want to forget what happened.

Monday, February 23, 2015

Wages, the Unleveled Playing Field

I was watching the news the other night, and they reported that Walmart is going to raise wages to $9 per hour. Later in the program they covered labor unrest in the S.E. Asian country of Myanmar with protestors complaining about being paid 17 cents an hour. I wondered how many times 17 cents went into 9 dollars. Hmm about 53 times.

That prompted me to research what the wages were in China for building cell phones. It looks like it is around $70 per week but the number of hours had to be more than 40 but less than 67 depending on what you read (6 days a week 11 hours a day). Figure a 66 hour week,labor costs about $1.06 an hour. It takes about 7 hours to assemble a cell phone in China by one estimate and another suggests that in cost terms figure about $12 in Chinese labor per phone. So somewhere between 7 to 12 hours to assemble each unit. US labor at $9 per hour with employer costs of $6 we get $15 per hour. At those rates cell phone labor here in the US would run about $150 per phone. And if you take into effect the quality of work provided by the minimum wage worker, cell phone productions costs would probably be closer to $350 per unit Stateside.

Suppose you are sewing shirts in Myanmar at 17 cents an hour, 53 employees is a hell of a workforce at 9 dollars and hour. Can you imagine having to supply Obama health care to them? Worker Comp or Social Security? Nah, no worry there. I’m tempted to buy 25 sewing machines and set up a shirt factory in Bangladesh.

Labor is cheap in the rest of the world and we enjoy its benefit. The trouble is, it is affecting our employment rates in the US. 16 million people are unemployed (9 million full and 6 million with part time jobs). For the price of a Walmart greeter, you can have 53 people sewing shirts for you 11/6 in Myanmar. I can meet that payroll. These used to be American jobs.

And if that isn’t bad enough, from the Associated Press: "More than half of America's recent college graduates are either unemployed or working in a job that doesn't require a bachelor's degree." That doesn’t bode well for the government student loan program. A college education does not guarantee a well-paying job. But, to keep the ball rolling, Obama might probably offer College grads on the student loan program, a nothing down Fanny Mae home loan as a bonus. Give them more “free” stuff--let them sell their souls to the company store.

Then there is the growing underground economy. It’s called, "Businesses without addresses.“ If you don’t have a business location, the government can’t tax or regulate you. A lawn or pool cleaning business is invisible. The Uber cabs are under the tax radar, as is every business running out of a garage. With the advent of cell phone and the internet, many more services exist without a taxpaying address --part of our hidden economy. The net effect; as government controls increase, taxes collected will decrease, with more people appearing to be in need of government help.

Single and make 40K cutting lawns? - - figure you save 12k in taxes and Social Security not paid, you qualify for food stamps and free health care. And for God’s sake don’t get married if you plan to have kids, your partner will lose her welfare benefits. And if you are here illegally, what are they going to do to you if they catch you? They’re certainly not going to deport you.

The pitiful hourly wage in Myanmar suggest that religion could be the only escape people have, from the economic shackles of slave like poverty. Christianity held the world together during the dark ages, with the promise of a better life in the "Hereafter." For the “I want it now generation” the promise 70 virgins and heaven tomorrow (if you’re in a hurry) sure beats the reality of working for 17 cents an hour.

So here we are with people making 17 cents an hour in one country and college graduates in another that can’t find a decent job. If a couple in Myanmar find true love, they’ll be making 34 cents an hour together. If two college grads find true love, they’ll have a baby just looking at their combined monthly student loan payment.

Wednesday, February 11, 2015

Greece to Repudiate Debts

February 28 is when Greece has to refinance its debts with the EU. I think Merkel of Germany has already been enlightened by Greece’s new leader when he probably told her something like; “Take a long walk off a short pier.”

Bankruptcy will not kill Greece, any more than it did Iceland. It looks as if people will start bailing out of the Greek crap starting about Friday the 13th (if you are in the know) and about 7 days later Feb 20, if you weren’t paying attention.

The basic thing about Greece, is that bankruptcy is a one time event, which makes life worth living again. The scary thing is that the rest of the world cannot see the reality of the action. Greece will leave the Euro and rise up out of the ashes like the Phoenix.

Greece does not need the Euro, the other EU nations need to keep Greece in the union to give the Euro legitimacy. The EU is offering a country drowning in debt, a cinderblock as a life preserver.

Germany is the loser if Greece packs it up. Europe is expecting Greece to kowtow to the bankers. Funny, I don't think it is in the cards. They have a choice, repudiate the debt or go back to a military dictatorship. 26 percent unemployment is a lot of frustrated people drinking beer with not much to do, other than riot.

Sunday, February 08, 2015

Restaurant Menu Prices From 1938

Here is a reprint from two years ago for some of you that might have missed it.

I was searching through some picture albums of my parents from way back and ran into some restaurant menus  from the depression era of late 1930's.. The first 3 pictures are from the Manhattan  Restaurant


The Second menu (three pictures) is on the Union Pacific Railroad from 1937 somewhere in Wyoming.

This last menu is from the Hotel Windermere in Chicago 1937.

Double click on the images to see what the prices were back then.   Did you notice that the Manhattan offered a broiled (Whole) lobster for 65 cents?  In today's world, you'd be lucky to get half a lobster for $30.  Bear in mind, the people that read these menus in real time are probably dead by now.

The pay raise that everyone gets each year because of inflation is just an allusion. Look around, the new hires are starting out a few pennies less than what the seasoned workers are making.  The neat thing about inflation is that Congress doesn't have to raise the tax rates, you earn more, you pay more.  That's the real difference between the Democrats and Republicans; print as you go verses pay as you go.

The real odd thing is that the average person does not connect the dots. The relationship between government spending and inflation does not exist. Rumor has it, we've always had inflation-- I guess we're supposed to get used to it.  My wife bought a new battery and asked me to guess how much she paid for it, and I said $40.  Her answer; "That's the price you would have paid 20 years ago, the battery was $100."

Let's see,(from top menu third pic red part) I'll have the broiled lobster with coffee and a slice of cake--that's about 85 cents total, plus 15 cents for a tip.  The trouble is, 76 years of inflation have raised the prices a tad.

Saturday, January 24, 2015

Currency Adjustments (The Collapse of the Euro)

Switzerland gave no notice when it stopped supporting the Euro. People were surprised that the message wasn’t telegraphed like the Federal Reserve does. Think about it for one moment. Why give any advanced notice? England in 1967 denied that it would devalue the Pound up to the minute it did it. We went off the gold standard in the blink of an eye. When it comes to currency, countries are ruthless.

Right now, we probably have several European countries printing the first of their new currency. A new currency could take from about 3 to 8 months to produce before any announcement is made. Notice one thing, this all has to happen under extreme secrecy. It will be a sudden and swift conversion from one currency to another. Figure a three day weekend with a holiday sandwiched in so the currency can be distributed to the banks.

Europe is going off of the Euro. It is a little like a divorce. Each side thinks their significate other has no idea of what is about to happen. The trouble is, the shoe doesn’t fit any better for you than it does for her. I would hazard a guess that the following countries are now printing a new currencies; Spain, Portugal, Italy, and France. This is all about the failure of Euro.

Travel on to oil related problems, and any country that has an economy supported by oil at $90 a barrel will soon repudiate its debts and issue a new currency. Of course the basket cases like Venezuela, Greece, or Nigeria, are more likely to witness a regime change first and a new currency second. In this case you lose your life savings.

What we will be facing is the rise of dictatorships where one individual can get things done; replacing a Democracy smothered in bureaucracy. Adolf Hitler’s rise to power wasn't so surprising, Germany of the 1930's was today’s Greece, smothered in debt.

The European commonwealth is going to buy back over a trillion Euros as a Quantitative Easing package. They looked at what the Fed did in the US and it appears to have worked. The trouble is, the effect was cosmetic. It moved future demand into present demand. Politicians that manipulate the financial system too much, will end up losing the confidence and support of their citizens.

At some point in the future, gold silver and platinum will have to be a part of any world monetary system. The present system is a political solution to a financial problem. Increasing the amount of currency that a government can print to pay the bills, over time loses all perspective. You end up paying more for less. Savings is defined as the option to consume later what you produced today. Printed dollars are the product of zero production, but they spend just as well as those that were earned and saved.

Look for France to exit out of the Euro in the coming year, followed by Greece, Spain and Portugal. The reason I picked France to be first, is that there used to be a saying that the French devalued the French Franc every time they changed their underwear. Let's give them an excuse to change their underwear.

Monday, January 19, 2015

They Have Tiped Over The Apple Cart

The financial fiber of the world economy got a jolt when Switzerland announced that they would no longer peg the Swiss franc to the Euro. They had been buying Euros to support the parity by printing Swiss francs. The volume of money involved forward into the future was a blank check and they didn’t like the concept. They already owned 480 billion Euros that they didn't even need. I have often stated that the Euro will die, only for one reason, the politicians cannot print Euros. Guess what, they are about to print Euros over someone’s dead body and it doesn’t look pretty. Gone is the Swiss backing of the Euro. Everyone wants to hold Swiss francs, but spend Euros. Bad money always chases good money out of circulation.

The low interest rates around the world are beginning to take a toll. Very low rates tend to accelerate the miss allocation of resources to nonproductive ends. Normally, interest rates play a big part in whether a project will get built or not. Very low interest rates force the flow of cash to investments that pay a higher return. So if the banks are paying 1 1/2 interest and the stock market returns 12% guess where money is going? The current chicken coming home to roost is oil exploration investments. Canadian tar sands which has the consistency of very thick molasses (after heating) can be pumped through a pipeline if someone thinks that it is a good buy at $100 a barrel. Whoever financed the tar sands project is probably standing at a freeway exit holding a cardboard sign saying, "Will work for food."

Some people are claiming that the economy is out of the woods now because there isn't the hint of a recession. I’d like to point out to them that a recession and a depression are two different animals. We are in a full blown depression and have been since 2006. A recession is an economic statistical calculation. In a depression, you have terms like Quantitative easing, high unemployment, ZIRP, high enrollment in government programs like food stamps, and extreme government waste (economic stimulation) trying to find solutions like Solyndra. We can't stop printing dollars and we don't dare let interest rates set their own level (if we expect to pay the interest on what we printed).

The real trouble right now is the trust of government, and I suggest that it is misplaced. Fanny and Freddie have resumed writing 3% down low interest, home loans. The house is way overpriced, but this will make it easier for minorities to purchase a home. Common sense suggests that if these homes were such good deals, there wouldn't be any left. Isn’t this what started the housing mess?

The government ZIRP (zero interest rate policy) stimulates borrowing and encourages people to take on more debt and consume product. Couple that with Quantitative Easing (printing money) and this is what the world is dealing with. We used to put money in the bank and talk about compound interest being the 8th wonder of the world. Now it’s all about consumption and seeing how many dollars you get back on your credit card purchases. You don't have to wait and save up to purchase what you want, you can have it now. Kind of makes you wonder, isn't this what bubbles are made of?????

Switzerland just tipped over the apple cart by saying “no” to printing more francs and the funny thing is that nobody is quite sure what will happen next. The sanctity of the Euro has been challenged by the oldest successful banking country in the world.

As a post note:

In Switzerland
Step one: Foreign depositors face a 7 ½ percent tax on Swiss bank deposits
Step two: Swiss Franc unpegged from the Euro 1/15/2015

In Denmark
Step one: Foreign depositors now face a 2 percent tax on Danish bank deposits 1/19/2015
Step two: Hmmmm

Saturday, January 10, 2015

Congressional Idiots

I had a day off from work the other day and decided to listen to a live session of the House of Representatives. The discussions revolved around taxing the rich and stemming the flight of corporations to foreign shores.

The Democrats normally pull out an example of some corporate CEO making millions while his workers make very little. You never see this “rich“ (high income earner) person being a basketball or football player who makes millions but pays very little in taxes. It is always the rich against the middle class. Did you ever notice the difference between the two? The rich don’t have to work and if you don’t work, you pay no taxes. In the process of getting rich, you pay taxes. Once you make it, you have no more taxes to pay. Middle class people have taxes to pay and if you have enough deductions to escape taxes, you’ll be classified as poor. From a basic point of view, the rich and the poor pay no taxes and the middle class is stuck with the bill. So we get a two hour Congressional litany on why Congress should tax the rich, great vote getter, rah rah, rah.

Congress also wants to stem the flow of companies moving offshore. Have you ever asked yourself the question, why all of the new startup companies, start in a garage? Answer: the government cannot control what you do in your garage. Want to start a business? The paperwork is ridiculous, not to mention the extra money needed to satisfy all of the state laws that needed to be observed. Before you even open, you have to open up accounts with the state for unemployment insurance, workman’s comp, Social security, employer tax ID and so on. They will send you forms 4 times a year that threaten you with fines if filled out wrong or sent in late. I can guarantee that you will not even comprehend how to fill out the forms unless you are a lawyer. And if you become a success, the lawyers will feed on your company as if it was dead carrion. No wonder manufacturing has moved to a safer less restricted havens.

You really don’t have to think too hard to realize that Congress has dug itself in a deep hole and hopes passing a few new laws will somehow change things back to the ways they were. Their approach is a little like walking down the stairs with both shoes untied. They know where they are going, but its going to be a little different this time.